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The primary advantage of early payment discounts is that suppliers can get paid sooner, which accelerates cash flow. It also reduces the risk of nonpayment or late payment. For some non-investment-grade suppliers, an early payment discount is an attractive alternative to traditional financing methods like commercial-based lending. Suppliers also feel that they will be rewarded with more business if they participate in customers’ early payment discount programs.
But for critical suppliers in the direct material supply chain, early payment discounts aren’t the win/win they’re often portrayed to be and any increase in customer demand can easily be negated. Using the example outlined above, the buyer receives a 2% discount on an invoice if that invoice is paid on day 10 rather than day 30. Essentially, the supplier is paying 2% of the invoice value for accelerating payment by 20 days. That’s an annualized percentage rate (APR) of 36%. Very few direct material suppliers have financing costs anywhere near those exorbitant rates.
Suppliers that find early payment discounts an attractive form of working capital finance should analyze the impact these discounts could have on supply chain costs. Interest rates on early payment discount terms that translate into an APR of 15% or more, place a heavy financial burden on suppliers. No efficiency is gained by a supplier incurring what is essentially a very high interest rate to get paid early. Furthermore, early payment discounts are at the discretion of the buyer and buyers can opt not to participate. This impedes the supplier’s ability to forecast cash flow.
It depends. If a buyer’s primary objective is to reduce cost of goods sold, then early payment discounts can be helpful in achieving that objective. However, to make a meaningful impact on this metric, most buyers need to participate in several supplier early pay discount programs.
On the flipside, if the buyer’s primary objective is to improve its cash conversion cycle or average days payable outstanding, then early payment discounts can have a negative impact. Other trade finance solutions, such as supply chain finance, can be much more effective in achieving this objective.
For buyers and suppliers looking to increase cash flow and optimize working capital, there are alternative trade finance solutions such as supply chain finance or accounts receivables finance programs.
Supply chain finance, also known as supplier finance or reverse factoring, is a set of solutions that optimizes cash flow by allowing businesses to lengthen their payment terms to suppliers while providing the option for their suppliers to get paid early. Receivables sold under a supply chain finance program are nominally discounted at a rate tied to the credit cost of the buyer, which in most cases is better than the credit cost a supplier would pay to its own financing providers.
Accounts receivable financing allows companies to receive early payment on their outstanding invoices. A company using accounts receivable financing commits some, or all, of its outstanding invoices to a funder for early payment, in return for a small fee. Receivables sold or pledged under an accounts receivables financing program are discounted at the supplier’s credit cost – unless the supplier pledges or sells its entire portfolio of receivables and sets up a series of complex cash control measures that reduce risk to the lender but add substantial operational cost and complexity to the supplier.
For suppliers, these options provide the benefits of early payment and improved cash flow without the high costs associated with early payment discounts. These programs also improve cash flow for buyers and provide access to large sums of working capital. These funds can be used to make large-scale investments in initiatives that increase innovation and productivity, while also positively impacting metrics like cost of goods sold and days payable outstanding.
Contact us to speak to a Working Capital Solutions Specialist
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VP, Global Head of Marketing
Stephanie joined PrimeRevenue in 2015 and oversees the company’s global marketing team and strategy. With a data-driven approach, Stephanie focuses on demand generation and thought leadership to drive brand awareness, strengthen client/partner relationships, and generate new sales opportunities. Stephanie has guided PrimeRevenue through new technology releases and an evolving FinTech landscape. In addition to leading PrimeRevenue’s internal and external communications, she implemented innovative demand generation and marketing strategies to enhance the company’s overall sales pipeline.
Stephanie has extensive experience in marketing and customer success. She previously served as Vice President of Marketing and Communications at BitPay and Vice President of Client Relations and Marketing at FirstView Financial. Stephanie earned a B.A. degree in Political Science from Agnes Scott College in Decatur, Georgia.
VP, Global Head of Sales
Brian joined PrimeRevenue in early 2012, after more than 20 years of sales leadership, executive-level consultant and business growth experience. As VP, Global Head of Sales, Brian leads a growing team of fintech sales professionals with a focus on developing strong customer relationships, improving sales predictability and helping PrimeRevenue enter the lucrative mid-market.
Prior to PrimeRevenue, Brian honed his enterprise software sales leadership skills at Clarus Corporation. He also served as an operations and IT management consultant for Kurt Salmon Associates. In addition to his sales and consulting background, Brian has deep experience in the financial industry having founded a successful residential mortgage broker and lending business. He is a graduate of the Georgia Institute of Technology having earned a B.S. in Industrial Engineering and Economics and M.B.A. in Global Business.
SVP, Global Customer Success
Jason joined PrimeRevenue in 2021 following more than two decades in the fintech/financial services industry. He brings a strong background is sales leadership due to his impressive relationship building capability as well as a successful track record in creating structure and process improvements. In his role, Jason uses his keen attention to detail to strengthen the customer experience and enhance the company’s solutions to deliver more value to clients.
Prior to joining the company, Jason held several senior level and executive roles with a focus on building and scaling sales and support organizations at both large and small companies. Jason graduated from Murray State University with a B.S in Marketing.
Matt joined PrimeRevenue in early 2015 and is responsible for overseeing all commercial, strategic and operational aspects of PrimeRevenue’s supply chain finance offerings throughout EMEA, based in Prague. He has been instrumental in gaining global alignment and developing supplier enablement processes for the region.
Matt joined PrimeRevenue following a 15-year career at Morgan Stanley, where he worked in fixed income operations covering debt syndication through bonds, EMTNS, corporate loans and other debt securitization. Notably, he set up non-core location operations in Europe (Budapest) and all lending operations in Baltimore from scratch.
Matt, who was born and raised in South East England, earned a B.S. in Sports Science at University of Teesside where he mastered the art of TEAM development and accountability as a youth international rugby player.
Dominic joined PrimeRevenue in 2016, and is responsible for leading our bank and capital markets funding strategies and execution. He focuses on building global, scalable and highly efficient funding structures that maximize options for supporting PrimeRevenue’s programs. Dominic began his career as an attorney and was a partner with Kaye Scholer before joining DLJ as a senior banker. Dominic brings tremendous strategic and capital markets experience in all areas of finance having held senior positions at, among others, Credit Suisse and RBC Capital Markets in addition to DLJ. Dominic earned a JD from Fordham University School of Law and a BA from SUNY Binghamton.
Gavin joined PrimeRevenue as Chief Operating Officer in 2021. With more than two decades of leadership and executive experience along with a deep understanding of the payments space, Gavin provides a unique focus on improving and strengthening operational strategies and implementing GTM growth execution. He is responsible for leading transformation across corporate and operational strategies as well as building a repeatable and scalable commercial growth strategy that aligns with PrimeRevenue’s core business while delivering key adjacent growth opportunities.
Prior to joining PrimeRevenue, Gavin served as President and Chief Revenue Officer of Integrated Solutions at TSYS, a global payment processing services company acquired by Global Payments (NYSE:GPN). There, he also served as Head of Product and divisional COO. Throughout his career, Gavin has held multiple leadership positions including VP of Sales, SVP of Business Development, and President of Financial Institutions. Gavin graduated from the University of Northern Colorado, Greeley.
David joined PrimeRevenue as General Counsel in 2007. He and his team have been instrumental in successfully creating the unique legal structures that support PrimeRevenue’s multi-funder model and global funding capabilities. David is also the lead named inventor on PrimeRevenue’s two patents for Electronic Time Drafts, which allow PrimeRevenue to manage supply chain finance programs using electronic negotiable instruments as opposed to accounts receivable. Prior to PrimeRevenue, David was General Counsel at Harbor Payments, which was acquired by American Express (AXP) in 2006, and Magnet Communications, which was acquired by Digital Insight (DGIN) in 2003. He holds degrees in Economics and History from Duke University, and Juris Doctor and M.B.A. degrees from the University of Georgia.
CEO
Nathan has successfully ushered PrimeRevenue from our very early days as a visionary startup, through the financial crisis to today’s position as a thriving mid-sized leader in the cloud-enabled supply chain finance marketplace since joining PrimeRevenue in January 2006. He was instrumental in recapitalizing the company with an $80M investment led by BBH Capital Partners in 2015. Prior to PrimeRevenue, he held various financial management roles with Ariba, Freemarkets and PriceWaterhouseCoopers. Nathan holds a BS in Accounting from Pennsylvania State University.
CEO
PJ has an impressive and accomplished track record as an enterprise software entrepreneur and executive. PJ has built a solid record of success with PrimeRevenue since being appointed Chief Executive Officer in July of 2009. The company has received numerous awards for growth, customer service, innovation, along with being recognized as a top employer.
PJ is a life-long software and technology entrepreneur having been involved in numerous firms in the roles of founder, executive, advisor and investor. Immediately prior to PrimeRevenue, PJ was the VP and General Manager of Exact Holding N.V. (NYSE/AMS: EXACT), a leading global provider of business software solutions. He was previously Founder and CEO of Inspired Solutions, an Atlanta-based, B2B software and services firm that grew to be the largest reseller of Exact Software in North America, later acquired by Exact. PJ holds a Bachelor of Industrial Engineering from Georgia Institute of Technology.